1. Transport Economics: Resource Allocation

2. Costs In Transport Three Types: Private Costs
External Costs (externalities)
Social Costs =Private Costs + External Costs

3. Efficient Resource Allocation In Transport
As we know efficient resource allocation in markets exists where MC = MR.
In the case of transport we can say that efficient resource allocation will exist at MSC = MSB.

4. Efficient Resource Allocation In Transport
Cost/Benefit
quantity
MSC
MSB
Optimum allocation
Cost/Benefit
quantity
MSC
MSB
Optimum allocation

5. Efficient Resource Allocation In Transport
However as we know in many markets this is not the case as private costs fail to reflect social costs of provision.
Therefore the market does not allocate resources at the socially optimum point.
What, therefore are these costs?
Cost/Benefit
quantity
MSC
MSB
Optimum allocation
MPC

6. Private Costs of Transport
These Fall into Two Categories:
Fixed costs: the costs of making transport vehicles available for use.
Variable costs: costs dependant on the way in which transport vehicles are used and the level of service available.

7. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Heavy Goods vehicles
Rail
Air
Sea

8. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Capital costs, insurance, road tax, depreciation
Fuel, Maintenance, Tyres
Heavy Goods vehicles
Rail
Air
Sea

9. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Capital costs, insurance, road tax, depreciation
Fuel, Maintenance, Tyres
Heavy Goods vehicles
Capital costs, Licenses, insurance, depreciation, depot costs
Fuel, maintenance, drivers wages
Rail
Air
Sea

10. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Capital costs, insurance, road tax, depreciation
Fuel, Maintenance, Tyres
Heavy Goods vehicles
Capital costs, Licenses, insurance, depreciation, depot costs
Fuel, maintenance, drivers wages
Rail
Track costs, capital costs, interchange costs.
Fuel, maintenance, labour costs
Air
Sea

11. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Capital costs, insurance, road tax, depreciation
Fuel, Maintenance, Tyres
Heavy Goods vehicles
Capital costs, Licenses, insurance, depreciation, depot costs
Fuel, maintenance, drivers wages
Rail
Track costs, capital costs, interchange costs.
Fuel, maintenance, labour costs
Air
Capital costs, administrative and overhead charges.
Fuel, maintenance, landing charges, in-flight services, labour costs
Sea

12. Private Costs of Transport
Mode of Transport
Fixed Costs
Variable Costs
Private Cars
Capital costs, insurance, road tax, depreciation
Fuel, Maintenance, Tyres
Heavy Goods vehicles
Capital costs, Licenses, insurance, depreciation, depot costs
Fuel, maintenance, drivers wages
Rail
Track costs, capital costs, interchange costs.
Fuel, maintenance, labour costs
Air
Capital costs, administrative and overhead charges.
Fuel, maintenance, landing charges, in-flight services, labour costs
Sea
Capital costs, insurance, administration and overhead charges
Fuel, maintenance, in-voyage costs, harbour costs.

13. Private Costs of Transport
N.B. – the are marked differences between modes of transport in terms of the ratio of fixed to variable costs.
E.g. Railway operation incurs heavy fixed costs however once a track is open for use the average cost per train falls as the no. of trains using the line increases.

14. The External Costs of Transport
Pollution: Climatic, Visual and Noise.
Community severance and Damage from Vehicles.
Accidents
Congestion

15. External Costs of Transport
In order to account for these external costs we implement an indirect tax of a,b,c in order to internalise these costs to the producer and the consumer.
Cost/Benefit
quantity
MSC
MSB
Optimum allocation
MPC a c b

16. Figures

17. Track Costs Argument